Monday, March 10, 2008

Why should I care about a successful restructure plan?

By: Daryl Ching, Clarity Financial Strategy

As most of you know, I have been in touch with numerous ABCP noteholders – retail and corporate. Some have engaged us to provide a full analysis of the Restructure Plan, which includes review of the valuation of the restructured notes, fundamental credit analysis, analysis of the terms and conditions, and the implications of signing on to the proposal. A question I have been asked by several people is, “If I can’t hold the assets for 7-10 years, why should I care about a successful restructure plan?”

Most investors have realized that a successful restructure plan does not mean that they will be receiving all their money back at the end of April. The ABCP will be restructured to longer term notes to match the maturity of the assets, and it is the hope through our analysis that these assets will recover par at maturity. There is no promise that noteholders will be able to sell their notes and at what price. Mr. Crawford has indicated that providing liquidity to those in need will be a key initiative from the Committee. This may be achieved through a secondary market, where buyers will purchase the notes or loans from a financial institution backed by ABCP. We need to hold the Committee accountable for this and ensure that this remains a top priority for those investors who do not have the capacity to hold on to the notes.

However, whether your intention is to sell the notes in the secondary market, obtain a loan or even sue for damages, I have to conclude that a chance of full recovery of your principal is best if the restructure is successful. As I have mentioned before, an unsuccessful restructure and a fire sale, could result in zero recovery for a large component of the assets. If a successful restructure is completed appropriately, and if the opinion is given by experts in the market that there is a reasonable expectation of full recovery over a certain term, I have to think that larger institutions are much more likely to make concessions and take on the exposure.

I understand a number of you are extremely upset and feel that the larger institutions should step up and take some responsibility for what has happened – and they should. There is a way you can point a finger at dozens of parties who should take a share of the blame for this financial crisis, they all need to take some responsibility. However, if a restructure does not complete and the perceived value of these notes becomes zero, I assure you that no one will be stepping up and we can all brace ourselves for years of litigation and finger pointing before anything gets resolved.

In my opinion it is important for all noteholders to understand the Restructure Plan and be able to make an informed decision as to whether to sign on or not.

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